The UK's biggest holiday company, Thomson Travel, has agreed to be taken over by German rival Preussag, thus becoming part of Europe's largest leisure group.

This puts a question mark over the future of travel operator Thomas Cook. The firm is already part of the Preussag empire, but is likely to be sold now for competition reasons.

"The acquisition of Thomson gives
Preussag the chance for a quantum leap in expanding its
tourist business," said Preussag chief executive Michael Frenzel.

The acquisition of Thomson gives
Preussag the chance for a quantum leap in expanding its
tourist business.

Michael Frenzel, Preussag boss, on Monday

Until a few years ago Preussag was a steel and mining conglomerate, but transformed itself into a giant leisure group through a series of strategic sales and acquisitions.

Preussag's bid of £1.8bn, or 180p per share, has been unanimously recommended by the Thomson board.

The bid has topped an offer of 160p per share from German travel company C&N Touristic, which has been stalking Thomson for the last month.

It would be very strange for Preussag to sell Thomas Cook in order to buy Thomson.

Michael Frenzel, Preussag boss, October 1999

Preussag already has a controlling stake in Thomas Cook, which has 22% of the UK market, and it says it will sell that stake if its bid for Thomson is successful.

The deal with Thomson ensures that Preussag stays the largest package holiday company in Europe, and it says it is planning further expansion.

Thomson owns a string of brands in the UK market, including Portland Direct, Crystal Holidays and the Magic Group.

It also owns a travel agent, Lunn Poly, and its own airline, Britannia.

But it has been struggling to keep up with rival Airtours, who has threatened to overtake it in the package holiday market.

The deal should help keep down the price of package holidays for consumers as the new group will be able to use its increased buying power to lower the cost of flights and accomodation abroad.

Shareholders gain

The agreed deal would take Thomson's share price above the price at which shares were initially sold to the public.

After peaking at nearly 200p a share, they plummeted and in February reached a record low of 69p.

On Monday they rose to 172p on the news of the offer.

Preussag said it has received acceptances from 23.6% of Thomson's shareholders, including the Thomson family, and holds another 7.2% itself.

Thomson had previously rejected a series of offers from C&N, which is owned by Lufthansa, the airline, and retail and holiday group
Karstadt Quelle.

In April C&N offered 130p a share, which was later increased to 145p.

The move represents an about-face for Preussag, which had said in October that it would be "very strange" for the company to acquire Thomson and sell its stake in Thomas Cook.

Carlson Companies, a privately owned US travel company, owns a 22% stake in Thomas Cook and has the right to buy out Preussag's stake.

Troubles at Thomson

Since Thomson floated two years ago, it has had a difficult time.

The business was hit by a lack of last-minute summer bookings in 1999 and a quieter millennium period than expected, leading to a number of profits warnings and the resignation of chief executive Paul Brett.

Some analysts believe it has devoted too much time to vying for supremacy in the package holiday sector.

It was also less aggressive at moving into European markets than rivals like Airtours.

Thomson was founded by Canadian media tycoon Lord Thomson in 1965, and was the first major package holiday company in the UK.